Social security and unsecured debt

A finite-life private-information theory of unsecured consumer debt

We present a theory of unsecured consumer debt that does not rely on utility costs of default or on enforcement mechanisms that arise in repeated-interaction settings. The theory is based on private information about a person’s type and on a person’s incentive to signal his type to entities other than creditors. Specifically, debtors signal their low-risk status to insurers by avoiding default ...

A Finite-Life Private-Information Theory of Unsecured Debt

We present a theory of unsecured consumer debt that recognizes a debtor’s legal right to default. Our theory does not rely on psychological costs of default (or stigma) nor does it rely on enforcement mechanisms that arise in repeated-game settings. Our theory is based on private information about a person’s type and on a person’s incentive to signal his type by avoiding default in the credit m...

Finite-Life Private Information Theory of Unsecured Debt

Borrowing During Unemployment: Unsecured Debt as a Safety Net

This paper explores two related questions: Does unsecured debt help households supplement lost earnings during unemployment, and does limited access to such credit have important welfare implications? These questions have become particularly relevant as consumers increasingly rely on unsecured debt to finance consumption. Growth in unsecured debt has been most striking among the poor. Some rese...

A Note on Social Security and Public Debt

In a simple stochastic overlapping generation model, individuals work when young and retire when old, generations’ productivity is affected by a serially uncorrelated random shock, and fiat money and nominal public debt are the only storable assets. In this setting, we show that social security programs featured by a constant contribution rate and budget-balance in each period, as common in the...